October 02, 2007

Results From The E-Mail Marketing Budget Post

Each week, I am pitched by e-mail vendors, folks asking for access to my client base, or asking me to blog about their services to you, the loyal reader.

These e-mail marketers, researchers, and vendors are hopeful that corporations will increase their e-mail marketing budgets, so that vendor products and services might be considered.

A little over three days ago, after another week of pitches, I gave the vendor community an opportunity to discuss how a hypothetical corporation might increase their marketing budget, and to quantify the sales impact of various strategies.

One way to impress the client-side of the vendor/client relationship is to offer useful and actionable thought leadership. Given the number of pitches I receive, vendors, researchers and marketers missed an opportunity.

In this example, the e-mail marketer generated $10,400,000 demand per year by blasting a million e-mails per week, 52,000,000 per year. I asked folks to offer strategies that might increase demand, profit and ROI, quantifying the impact for my readers.

Let's talk about a few topics.

E-Mail Frequency: In this example, the corporation chose to send one campaign per week. Here is a table that illustrates the expected demand, profit and ROI based on number of contacts:

Annual E-Mail Return On Investment By Frequency (in 000s)

Demand

Cost

Profit

ROI

$/E-Mail

1 Contact Per Month

$5,200

$250

$1,570

628.0%

$0.43

1 Contact Per Week

$10,400

$1,000

$2,640

264.0%

$0.20

2 Contacts Per Week

$14,708

$2,000

$3,148

157.4%

$0.14

3 Contacts Per Week

$18,013

$3,000

$3,305

110.2%

$0.12

4 Contacts Per Week

$20,800

$4,000

$3,280

82.0%

$0.10

5 Contacts Per Week

$23,255

$5,000

$3,139

62.8%

$0.09

Companies that do thorough e-mail contact strategy testing have learned several interesting facts. Notice that it is possible to start losing money as e-mail contact frequency increases. Increased frequency dilutes demand per e-mail --- so that even at a very minimal cost per e-mail contact, profit begins to decline after three e-mail contacts per week (in this example --- your mileage may vary).

E-Mail Targeting: Targeting strategies can effectively increase demand per e-mail. Many companies in my industry have an e-mail list where between ten percent and fifty percent of the list have no customer information appended to it. In other words, all you know about these folks is their e-mail address. You're not going to improve performance via targeting with these individuals.

With the remaining individuals, you might get a 30% increase in demand by executing e-mail targeting strategies. The weighted average of these two populations results in a conservative increase in demand of, say, 20%. The following table overlays the 20% increase in performance, adding the marginal cost required to execute the targeting strategy.

Annual E-Mail Return On Investment By Frequency (in 000s)

Demand

Cost

Profit

ROI

$/E-Mail

1 Contact Per Month

$6,240

$269

$1,915

712.7%

$0.52

1 Contact Per Week

$12,480

$1,075

$3,293

306.3%

$0.24

2 Contacts Per Week

$17,649

$2,150

$4,027

187.3%

$0.17

3 Contacts Per Week

$21,616

$3,225

$4,341

134.6%

$0.14

4 Contacts Per Week

$24,960

$4,300

$4,436

103.2%

$0.12

5 Contacts Per Week

$27,906

$5,375

$4,392

81.7%

$0.11

Let's say your Chief Marketing Officer doesn't want to "spam" customers ... so the CMO allows you go to from one e-mail campaign per week to two targeted e-mail campaigns per week, each targeted campaign having five creative versions sent to customers based on past purchase history, past clickstream behavior, and past website preferences. Let's compare the expected results, current program vs. proposed program.

Current Program: 1x Per Week, Same Version To All Customers

Demand = $10,400,000.

Marketing Cost = $1,000,000.

Profit = $2,640,000.

ROI = 264.0%

Demand per E-Mail = $0.20.

Proposed Program: 2x Per Week, Customer Receives One Of Five Possible Contacts

Demand = $17,649,000.

Marketing Cost = $2,150,000.

Profit = $4,027,000.

ROI = 187.3%

Demand per E-Mail = $0.17.

Notice the difference in results between the current program and the proposed program.

My guess is that your CFO will be happy with you if you demonstrate that you'll double your e-mail budget, while delivering a 52% increase in profit and a 69% increase in demand.

What Did We Learn?

First, e-mail marketing is a lot like catalog marketing. There are simple ways to quantify the impact of frequency and targeting. Go ask the catalog marketer down the hall to help you, if this type of work is a challenge for your organization.

Second, once we quantify the impact of these strategies, investment in e-mail marketing is self evident. You'll quickly find the optimal contact strategy, one that yields an increase in demand and profit. The investment quickly cost-justifies itself.

Third, the outcome of the analysis points to areas where you may need help. You'll probably need help developing a targeted e-mail scoring algorithm. I've created many of these, I'm sure your e-mail vendor does a great job as well. The targeting algorithm is where the benefit occurs. I baked those costs into the example.

Fourth, you'll probably benefit by having a campaign management software tool to integrate the scoring algorithm with your selection criteria. If you're a cataloger, you are probably using Unica Affinium for catalog campaign management. Simply apply Affinium (or your campaign management tool or even use SAS/SPSS), and send the list with targeted versions by e-mail address to your e-mail vendor for blasting purposes. I baked these costs into the example.

Sixth, while not included in this analysis, you'll want to monitor opt-out rates as frequency increases. At one company I worked with, we noticed that if we went past "x" e-mail campaigns per week, too many people opted-out, causing us to lose all the profit we gained via the targeting strategy.

Ok, your turn. What strategies would you recommend, and what would the increase in demand and profit be after implementing these strategies?

Kevin Hillstrom

Kevin Hillstrom, President, MineThatData

Kevin is President of MineThatData, a consultancy that helps CEOs understand the complex relationship between Customers, Advertising, Products, Brands, and Channels. Kevin supports a diverse set of clients, including internet startups, thirty million dollar catalog merchants, international brands, and billion dollar multichannel retailers. Kevin is frequently quoted in the mainstream media, including the New York Times, Boston Globe, and Forbes Magazine.

Prior to founding MineThatData, Kevin held various roles at leading multichannel brands, including Vice President of Database Marketing at Nordstrom, Director of Circulation at Eddie Bauer, and Manager of Analytical Services at Lands' End.

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